A Theory on Debt Driven Behavior

Despite living in the most technologically advanced times, able to do many tasks on our phones, and free of disease and war, western society is facing an anxiety and depression epidemic. People, especially affluent ones, are afflicted with chronic depression and other social anxiety disorders, medicating themselves more than ever. Moreover, labor productivity has hardly budged despite all the “disruption” and innovation.


How were people, 60 years before, using pencils and paper, able to achieve so much more than people today with smartphones and Macs. In the late 60’s and early 70’s, they built the original 747 and F-15 fighter which was more robust for their time than the modern variants (The Dreamliner and F-35). In 1931, the US government started the Hoover Dam project before the technology was even available, inventing as they went. Today we see governments struggling move a mouse and type on a keyboard, putting up websites.

Moreover, life appears to have gotten harder rather than easier. The rule of thumb for buying a home, just a generation ago, was to put 20% down (Egenkapital in Norwegian) and never pay more than two times gross annual earnings. Although we have become more efficient, driving down costs, on food production and automating manufacturing, somehow housing prices have taken off. Building and maintaining a house is easier than ever before. Despite hammers, replaced with nail guns, and hand manipulated wood and stone work, substituted with mass produced building materials, new and existing housing prices continue to climb.

Most will argue population growth and location. However, much of the beforementioned is due to artificially low-interest rates distorting the allocation of capital. People, instead of spreading expenses over many areas, are increasingly putting everything into housing: all their eggs in one basket.

Source: The Economist


House Debt & Consumer Debt vs. Retain Sector: Consumer debt and flat prices are rising, but retail sales remained relatively flat during the same period. Recently, they even started to decline. Hence, housing is clearly talking from other parts of the economy. People are spending more to cover rent or the mortgage. Since 2002 people went from spending ca. 4x their income on a flat to 6x, further exacerbating the debt situation.

All the while, real salaries have taken a dive, making it more difficult for Norwegians to afford imports.

Norwegian Salaries Holding Steady in NOK and Falling off in USD

How Debt Affects Psychology: Debt correlates with high anxiety, stress, and physical health issues. Moreover, studies show that debt contributes to rising clinical depression levels and often precludes suicide. Chronic debtors often have short time horizons, making them susceptible to predatory lending (short term loans at a high interest rate). This behavior normally starts at college. Idealistic students, averse to debt and obligation to others, come to realize that the only way to get the keys to the kingdom is by taking a loan. They reason to themselves that, after graduation and landing the first job, they will live modestly, keeping expenses low to pay off the loan right away, before embarking on any new ventures. However, that all goes out the window when the girl of their dreams asks them about their living accommodations and what kind of car they drive. Talking to older colleagues, already buried in debt but appearing to live ok, it starts to become an acceptable option. I experienced that if you do not own an apartment in Oslo, you could become a social outcast.

In the workplace, I witnessed the change in personality with individuals who just bought a place, after making their first payment. Before buying the flat, there is much excitement that they are getting their own place. They picture themselves wearing a suit and hosting a dinner party with the girl of their dreams, a little tipsy from Champaign, staying behind after everyone else departed.

The excitement grows after move in. Not having to make a payment for the first month, the euphoria becomes overwhelming. (The first payment is often included in the closing costs, which is rolled into the loan, adding to the apartment price, spreading payment over 25-30 years with interest). However, the next month is a rude awakening. That first payment comes due and the reality sets in. There are also communal fees and utilities. Suddenly, they do not feel so rich. They gave up all their savings for the down payment, just barely making it, living paycheck to paycheck. Hence, the societal “checkmate.”

In Norway, most young people buying apartments today are stretching, paying a much higher multiple of their income than those a generation before, often only putting down 15% vs. the customary 25% in the past. Moreover, many take consumer loans to cover part of the down payment.

The costly flat limits their geographic options, making it difficult to pursue new and better-paying opportunities in other places. Once the realization sets in that they are trapped, the focus at works moves from an idealistic tone, creating efficiency and taking risks, to a defensive one, keeping a low profile and passive-aggressively defending their “turf.”

Moving from “nothing to losing” and “everything to gain” to “everything to lose” and “nowhere to go” perspective, they stop seeing the upside potential but rather fear the downside risks. Afraid that if they do a good job, they will be out of work, a new kind of behavior emerges. Politics is an agenda other than efficiency (in a corporate setting: enhancing shareholder value, meeting customer expectations, and recruiting and retaining the best employees). They have to find a way to “milk” and preserve the current position, ensuring they can make their “monthly nut.” (payments).

Anyone who brings something of value, showing a lot of energy and enthusiasm becomes a threat. Doing the right thing, in terms of human and society values, becomes increasingly difficult and efficiency itself becomes the enemy because it leads to a quicker conclusion. That may explain why simple projects are dragged out and the endless corporate meetings where no single person can decide. If you worked in a large, yet unremarkable, corporation, then you recognize the behavior. People are taking a lot but not really saying anything, unable to make eye contact, and never really getting anything done.

If you notice an aura of paranoia and guarded agendas, people not being open and making eye contact, in the office, indebtedness may be the culprit. In my experience, people with massive savings, living below their means, are generally more congenial and fun.

Remember the Hoover Dam and original Boeing 747: both completed ahead of schedule and under budget: well before the age of computers and automation. I theorize that both the workers and managers back then were not preoccupied or bound by debt. Each one of those people was thinking about how to achieve excellence rather than making their next mortgage payment. They had a sense of pride that when the project was done, they could tie their identity to it. Debt is killing ownership mentality and pride.

Another Thought: Why Debt is Bad for the Environment: If people take the time to save money, perhaps living with less for a few years, setting aside before consuming, the trees and other resources will have time to mature. However, when people borrow money, getting something now and paying later, they often time harvest resources before they are ready: consuming faster than the replacement rate. That may explain the rapid deforestation and massive amounts of pollution. Spending when you have the money first instead of over time, into the future, is better for the planet.

In Norway, there is a prevailing thought that saving is hoarding. However, saving is a metaphor for preserving nature. For example, buying used things recycles resources already reaped versus new ones requiring additional resources, thereby straining natures already scarce resources.

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